Public Bill Committee

[Mr David Amess in the Chair]

(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules)

David Amess: I anticipate that the room will get warmer, so Members are free to take off whatever clothing they think reasonable.

Clause 43  - Financing costs and income: group treasury companies

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: Good morning, Mr Amess. It is not that warm in the Committee today; it might well get heated, but we can only hope for some excitement over the course of the day. Many Members will have been excited when they saw that clause 43 would be the first item to arise in Committee. If my hon. Friends could hold back their interventions for a short time while I get some of my points out, I will be grateful.
The clause changes the worldwide debt cap exemption for group treasury companies and tackles issues that have allowed companies that do not have a treasury function to make a group treasury company election. The debt cap rule, as it is known, imposed a limit on tax deductions for interests for UK members and branches of a worldwide group. The rules were introduced with effect from January 2010. Broadly, the rules restrict a group’s UK treasury deductions for finance costs to the worldwide group’s third-party finance expenses. The rules are complex in their application and require tests to be met, which involve looking at the financing income and financing expenses of UK group members and comparing that with the worldwide external borrowings of the group as a whole.
The Institute of Chartered Accountants in England and Wales says that the worldwide debt cap introduced back in 2009, when UK groups were exempted from tax on dividends received from their overseas subsidiaries, has, in broad terms, capped the amount of interest deductible in the UK, if the UK debt is greater than the particular group’s external worldwide debt level. The intention was to discourage upstream loans and excessive debt in the UK. Group treasury companies can elect to be exempt from the worldwide debt calculations, but in future, to be able to do so, all or substantially all, of the activities must be treasury activities. If they fail to meet that new “substantially all” condition, only the financing expenses and financing income that relate to the treasury activity will be included in the election. It appears that hitherto, treasury companies may have been distorting some of their income and expenses with non-treasury income and expenses.
I would like the Minister to help the Committee with some questions. They are difficult questions with which to grapple, but just because they are difficult, that does not mean that we should not try to clarify them so that matters are understandable. Can the Minister—and this is a very basic question—give examples of what group treasury companies are and what they do in the real economy, so that we are all speaking the same language, we know one when we spot it and we know what they are in layman’s terms? Are we talking about international finance houses; some sort of shadow banking hedge-fund institution; or the financing subsidiaries of larger corporate groups, where genuine real-world output is financed from intra-group lending? In the panoply of large multi-armed international and multinational organisations, a parent group or a subsidiary may sometimes have a treasury function and undertake various activities on behalf of the company that does the work. I am trying to paint in my mind’s eye a map of what exactly we are talking about, so I would be grateful if the Minister could help to explain that landscape, I would certainly be grateful.
In such circumstances, there is sense in restricting the tax deductibility of financing costs and expenses, including interest on loans, with a debt cap, especially if the group’s UK debt is bigger than the debt it holds elsewhere. Otherwise—I think that the clause is aiming at this—there would be a perverse incentive to locate corporate debt in the UK for reasons of tax efficiency. However, this carve-out or exception is made for treasury companies. Will the Minister explain the new distinction being made for group treasury companies?
The clause seems to change the definition of treasury companies so that only those that are wholly or mainly involved in certain activities can elect for exemption from the worldwide debt cap. That prompts me to ask what sort of businesses and how many of them will be affected. I would be grateful if the Minister could help to illuminate that matter by shedding a little light on this opaque area of tax law.

David Gauke: It is a great pleasure to welcome you back to the Chair, Mr Amess.
Clause 43 makes changes to the debt cap rules to close tax planning opportunities. The changes will revise how group treasury company election operates to ensure that tax planning is minimised, and they will take effect for periods of the accounts of a worldwide group that began on or after 11 December 2012.
It may help hon. Members if I provide some background. The debt cap rules were introduced in 2010 to limit the tax deduction that a UK company can claim for interest and other finance expenses at the level of the overall worldwide group. There are circumstances in which certain categories of companies can be partly or wholly removed from the debt cap rules, one of which is use of group treasury company election. A group treasury company’s finance income is usually almost matched by its financing expenses, so that the company has little impact on the overall position of the whole group for debt cap purposes.
The original intention of group treasury company election was to reduce the administrative burden on companies that have a treasury function in a group by allowing them to opt out of the debt cap rules. However, elections have been made by companies that do not have a treasury function, enabling them to shelter finance expenses that, without election, might be disallowed for UK tax purposes.
The clause has been designed to ensure that tax planning is minimised. It will make changes to chapter 7 of the Taxation (International and Other Provisions) Act 2010 to resolve the issue that has arisen about group treasury company election rules. In some cases, elections have been made by companies that do not have a treasury company function to circumvent the debt cap rules and avoid the payment of an additional tax charge.
For a company not to be subject to the debt cap rules, it must make a group treasury election and meet two criteria: first, most of its activities must be treasury ones; and secondly, most of its assets and liabilities must relate to those activities. If both conditions are met, all the company’s financing expenses and financing income fall outside the debt cap rules. However, if a company cannot meet the criteria, only financing expenses and financing income relating to its treasury activities will fall outside the debt cap, and an additional tax charge may apply. The measure is expected to increase receipts by approximately £40 million per annum. It will affect only the large groups of companies subject to the debt cap rules.
To answer the question of the hon. Member for Nottingham East, a group treasury company is one that arranges financing for the group from external borrowers and on-lends the external funds to fellow group companies. In effect, it is a conduit for finance for the group, and interest income received from the group companies to which it has lent funds is used to meet its own interest obligation to the external lender.
As I say, this change will affect only those large groups that have exploited this tax planning opportunity. Because of HMRC’s risk assessment and the time scales, we cannot say how many groups have exploited this opportunity, but none the less we believe that it is right to close it.

Nigel Mills: I have no problem with the clause. However, as I think I wrote to the Minister before, these rules are particularly complicated and burdensome for most innocent groups to try to comply with, and there are bizarre concepts. A company can be 5% of the global group in terms of trade but still have 100% of the finance deduction, and I am not sure quite why that was done. I think that these rules have been around for a few years. Could he write to me to set out how many groups have had to make an adjustment under these rules and say roughly what the annual tax take is, just so we can check whether the burden is really worthwhile?

David Gauke: I will certainly provide my hon. Friend with as much information as I can. He is right to say that the worldwide debt cap is a complex area of law. From time to time since 2010, amendments have been made to the cap. In truth, the group treasury company election was not working as intended and the changes that we are making will ensure that only those financing expenses in income generated by group treasury activity will be excluded from the debt.
Where loopholes in the UK tax system are identified, obviously we seek to address and close them. None the less, there would be considerable risk if we were to abandon the worldwide debt cap. As my hon. Friend said, this is a complex area and we seek to eliminate complexity where we can. However, there would also be considerable Exchequer risk if we were not to have some rules in place in this particular area.
It is also worth pointing out that HMRC is undertaking a review this year, to establish the facts that my hon. Friend has particularly asked for. So, probably the answer to his question is that I am very happy to write to him on this matter but not just yet. When I have the information to provide greater clarity on this particular point, I will certainly let him know. I know that he follows these matters very closely.

Christopher Leslie: I know that this is a slightly dry topic, but it is important that at some level we get a little more feedback—perhaps an interim note from the Minister on the progress of that particular review—because there are a number of questions that pop up every now and again about these intra-group financing arrangements. For example, there are issues to do with the quoted eurobond exemption arrangements and withholding tax in relation to other tax haven arrangements, which have come up regarding some of the utility companies and their intra-group financing arrangements.
Some serious questions are being asked about whether there are tax loopholes in this area that ought to be addressed from time to time, and it would be quite helpful just to get some information back from the Minister about what the Treasury’s strategy is when it comes to ensuring that we have a fair and a reasonably transparent process for operating some of these deductibility arrangements, but not one that unwittingly creates new loopholes or devices for companies to circumvent the rules.

David Gauke: I will perhaps repeat what I said a moment or so ago. HMRC is undertaking a review of the impact of this arrangement, the groups that have made use of it and so on. That review is under way. I will certainly add the hon. Gentleman’s name to the list of recipients of the letter I will send about this issue. I suspect that this Committee may no longer be in place by the time that we are in a position to provide the details asked for by my hon. Friend the Member for Amber Valley, but I will certainly ensure that he is aware of the progress that we make in this area.
In conclusion, the changes close a tax planning opportunity by making changes to the group treasury company election to ensure that only finance, income and expenses generated by genuine group treasury activity are excluded from the debt cap. I commend the clause to the Committee.

Question put and agreed to.

Clause 43 accordingly ordered to stand part of the Bill.

Clause 44  - Condition for company to be an “investment trust”

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: We now turn to clause 44. “Investment trust” is a term defined in the Corporation Tax Act 2010. The current approved investment trust arrangements allow immunity from corporation tax on capital gains. In order for investment trusts to be HMRC approved, certain conditions are set out in the Act. The clause, though, loosens the definition of “investment trust”. The previous requirement was that a company’s work must consist of investing its funds in shares, land or other assets, whereas the clause says that it is enough for “substantially all” a company’s business to consist of such investments.
While debating clause 43, we got the impression from the Government that they were tightening up a loophole, but I am slightly worried that clause 44 loosens and possibly relaxes the definitions. It is incumbent on the Minister to explain the rationale behind the move away from the tighter definition toward a looser one. What proportion of a company’s investments is sufficient to fulfil the new requirement that “substantially all” of its business consists of investing in shares, land or other assets? Does he feel that the measure might lead investment trusts to conduct their business beyond what they know to be part of their core activities, and to start taking on other aspects because they can now do so without losing their tax immunity? What sorts of activity do we expect to provide for by loosening the definition?
The practical effect of the clause is to expand the range of companies that can call themselves investment trusts and thereby take advantage of the immunity from corporation tax. It would be useful for the Minister to give us the calculation of what costs to the Exchequer will be involved in expanding the definition and consequently losing tax receipts. Will he shed some light on that?

David Gauke: Clause 44 removes an unintended consequence of changes to the tax rules for investment trusts introduced in the Finance Act 2011. The clause supports the Government’s objective of improving the UK tax system and ensuring that the UK remains a competitive location for investment companies.
Again, I will provide a bit of background to the clause. Investment trust companies are professionally managed, pooled risk-spreading investment vehicles. They are publicly listed and invest in a diversified portfolio of shares, securities or other assets with the aim of providing return to their investors. There are more than 200 investment trust companies in the UK, with total assets under management of about £60 billion.
Companies approved by HMRC as investment trusts are exempt from corporation tax on their chargeable gains, and companies that wish to be approved must meet and continue to meet certain conditions. One of those conditions is that the business of the company consists of investing its funds in shares, land or other assets with the aim of spreading investment risk and giving company members the benefit of the results of the management of those funds.
However, concerns have recently been expressed that the wording of the condition would prevent investment trust companies from engaging in ancillary activities, which was not the intended outcome. The clause addresses that unintended outcome. It amends the wording of condition A in section 1158 of the Corporation Tax 2010. It has effect in relation to accounting periods commencing on or after 1 January 2012. The change will make it clear that, provided that
“all, or substantially all, of the business of the company is”
investing its funds in shares, land or other assets, with the aim of spreading investment risk, other, ancillary activities will not prevent condition A from being satisfied.
It is worth pointing out that that definition is similar to the rules that existed pre-2011 and makes it clear that all, or substantially all, of an investment trust’s business must be investing its funds. However, providing that a company meets the relevant conditions for approval as an investment trust, receipt of some ancillary income—for example, from stock lending fees—that might be treated as trading income for tax purposes, will not prevent it from being approved as an investment trust by HMRC.
To deal with the specific question raised by the hon. Member for Nottingham East, it is also worth pointing out that this measure has been assessed as having nil cost, and that is set out in the tax impact information note.
In conclusion—

Christopher Leslie: Will the Minister give way?

David Gauke: I appreciate that using the words “in conclusion” always runs the risk of provoking an intervention. I fear I have fallen into that trap on this occasion.

Christopher Leslie: It is not that those words wake me out of my torpor; it is just that I was waiting for the relevant moment to quiz the Minister on a couple of points. He gave one example of what ancillary activities might be—companies receiving stock lending fees or, in other words, income related to hedging or derivatives trading activities. Given that the existing definition talks about a company trading in
“shares, land or other assets”,
I am slightly surprised that it would be necessary to deal with that, for a start. However, does the Minister have other examples of what ancillary activities might be? The statute does not specify or define any. As far as I can see, it could involve any number of activities; it could be agricultural or manufacturing—it is probably neither of those, but it could be.

David Gauke: I can give another example. If an investment trust has excess office space, and it decides to rent out a floor or some space, that would constitute an ancillary source of income. It is worth bearing in mind that all, or substantially all, of an investment trust’s business must be investing its funds. Some kind of conglomerate that engaged in all sorts of activities, but which included some investment trust-type activities, would not satisfy the conditions. However, where an entity has a business consisting of investing all, or substantially all, of its funds, but it has, for example, a small amount of rental income or a small amount of income relating to stock lending, that should not disqualify it from receiving the tax treatment that investment trusts receive and have received for some time.

Christopher Leslie: The Minister makes a reasonable point, and I certainly understand the issue of letting out spare office space and so forth—a spare room subsidy would be one way of describing that arrangement. However, there is no schedule in the Bill describing what ancillary services are, so there is an anxiety about companies testing the boundary of the phrase “substantially all”. Again, that is not defined. Is “substantially all” 90%, 70% or 51% of a company’s activity? I know that is not defined in statute, but it would help the Committee if the Minister could give a flavour of what HMRC means when it says “substantially all”. That would give companies a clear guideline, so that they do not to try and test the meaning. I am worried about a loophole potentially being offered that a lot of companies will head towards.

David Gauke: I am sure that the hon. Gentleman would agree that were we to produce a list in legislation of what ancillary activities might consist of, we would run the risk of debating the issue on a regular basis, as we would need to amend it from time to time. Much though I am enjoying the debate, I am not sure that the rest of the Committee would necessarily appreciate that.
As for what “all, or substantially all” means, HMRC will consider the facts in any particular case, but providing that a company meets the relevant conditions for approval as an investment trust, we do not believe that receipt of some ancillary income—stock-lending fees, for example—should prevent it from being approved as an investment trust by HMRC. Essentially, that was the test that was applied pre-2011. I am not aware of significant concerns that were raised that investment trust status was being abused and that businesses were pursuing general activities beyond investing in order to benefit from the tax treatment for investment trust companies. I hope that provides some reassurance. Obviously, if there was evidence that the system was in any way being abused, HMRC would take that into account, and it would take measures to withdraw that status.

Christopher Leslie: I do not disagree much with the Minister’s analysis, but I want to be clear how the clause has ended up in the Bill. It is not clear from his comments whether an enforcement problem had caused great anxiety among the investment trust community, or whether particular cases had provoked the need for it. It seems as though it is a generous response to a problem that I certainly had not heard much about before. What was the rationale for bringing it up in the first place?

David Gauke: The rationale, as I alluded to in my earlier remarks, is that we want the UK to be a competitive location for investment trust companies to be located. The reality is that there was concern in the industry about a risk, inadvertently, of some investment trusts fearing that they might lose their status, because of a small amount of ancillary activity that could take them outside the conditions. That was never the intention behind the 2011 regime, but none the less, it was a concern. I am aware that HMRC has seen examples that could have led to investment trust companies losing their approval. Given that that was an inadvertent consequence of the changes that came into effect in 2011, we obviously wanted to address that point. HMRC monitors applications, and there are self-assessment returns. If there is a problem in that area, it would be addressed.
I am delighted that the hon. Gentleman is seeing the point that I am making, and that I am persuading him on the issue, just as I appear to have done on child benefit—[Interruption.] I am not sure that I heard the hon. Gentleman’s comment—I think he said that I have not persuaded him, but there we go.

Christopher Leslie: You have not.

David Gauke: I am glad that we have that on the record; that is a further U-turn. Anyway, I should not be drawn into such areas, Mr Amess—I must go and report to the media monitoring people that we have another change of position.
In conclusion, the clause addresses the unintended consequence of the original legislation and it supports the Government’s objective of improving the UK tax system. I hope that it stands part of the Bill.

Question put and agreed to.

Clause 44 ordered to stand part of the Bill.

Clause 45  - Community amateur sports clubs

Question proposed,That the clause stand part of the Bill.

David Amess: With this it will be convenient to take that schedule 20 be the Twentieth schedule to the Bill.

Christopher Leslie: As a sporting individual, Mr Amess, you will be particularly delighted that we are now turning to the question of community amateur sports clubs: I have a vision of jumpers for goalposts, as you relax with your Pimm’s while watching the sporting activity on the local recreational ground somewhere in your constituency. I know that many hon. Members have great regard for the sterling work that many volunteers in their constituencies do to keep sporting life going in neighbourhoods, towns and cities across the country.
The issue we are considering has therefore provoked significant interest in a number of quarters, not least in the form of a front-page story in the Daily Mail—a paper that I read religiously on a regular basis—on 29 May. The Mail was aghast at the Government’s attitude to village sports clubs, which, it claimed,
“face crippling tax bills after a major crackdown by the taxman.”
At a time when tax questions are under the spotlight, the Daily Mail said:
“The crackdown—described as ‘a tax on village life’—has left many cash-strapped clubs facing ruin after receiving bills dating back years for those who help out by doing the cleaning, making tea and mowing grass.”

Ben Gummer: The hon. Gentleman is one of the few shadow Ministers not to have come to campaign in my seat, but I look forward to him doing so. When he does, he might like to talk to Ipswich borough council, run by his party, which is forcibly ejecting the Ransomes sports and social club from its ground and doing everything it can to make sure that that voluntary organisation cannot continue to exist. In the comments he is about to address to the Minister, will the hon. Gentleman pay attention to the fact that Labour councils are doing their best to undermine voluntary sports associations in my constituency?

Christopher Leslie: It would be wrong to suggest in any way that the hon. Gentleman was misrepresenting the realities of this issue, but I find it incredibly difficult to believe that Labour councillors and Labour authorities would behave in the way he describes. It does not ring true to me, so he must be mistaken in his understanding of that situation. I am sure we can find a way to clarify the matter for him at some later point; I do not know whether there are provisions for the Committee to adjourn to visit a particular location.

David Amess: Order. Tempting as it might be to discover its delights, it would not be in order to adjourn to Ipswich.

Christopher Leslie: What a shame, Mr Amess; I am sorry we will not be able to do that. The Minister needs to address the issue of the attitude taken by HMRC to what some have described as “easy targets”. Some cricket clubs have been severely irritated by the treatment of their institutions in contrast with the treatment of larger institutions that pose bigger problems. Amateur sports clubs rely on the help and good will of volunteers who coach and umpire, yet HMRC is at risk of saying that the funds given to cover those volunteers’ expenses or as recompense for their time should be treated somehow as a form of tax avoidance. It would be untoward if HMRC was being unfair to sports clubs in that way.
Indeed, a cricket club in Hertfordshire was recently subjected to five hours of tax inspection with HMRC officials—no doubt sent personally by the Exchequer Secretary to the Treasury, the hon. Member for South West Hertfordshire—who demanded tax on one-off payments made to volunteers who had been given cash in hand for helping out behind the bar or with the cleaning. The club concerned has been very exercised by what it sees as a David versus Goliath situation. Val Waring, the chairman of that club, has said that she does not get paid but does what she does out of her love for the club. The volunteers come back every week to hoover the floor and put the tea on. There has to be a bit of common sense, or some clubs will be shut down.

Ian Mearns: Chairman, I regret that you are banning us from going to Ipswich for a sitting of the Committee. It is a long time since I have sat next to a cricket pitch on the outskirts of Ipswich drinking a pint of cool Tolly Cobbold—but I reminisce too much.
Would my hon. Friend regard this as taxing the big society? I understand that HMRC is conducting a tax investigation into individuals who have gone through the bother of getting coaching certificates for football so that they can help out in the local community. HMRC’s focus in that respect seems a little bizarre.

Christopher Leslie: Clearly there have to be rules, and rules need to be enforced, and it is incumbent on us all to ensure that the tax code is in order and set out. There is obviously some motivation, however, somewhere in the Treasury, to put undue emphasis on enforcement, and the checking and double-checking of small sports clubs—perhaps it is in Bromsgrove. I am not sure from where the motivation comes for that drive within HMRC, but the issue is proportionality and ensuring that common sense is applied. I would be grateful, therefore, if the Minister could set out the Treasury’s approach to enforcement and put at rest the minds of volunteers in sports clubs, assuring them that they will not be picked on in that way in future.

John Cryer: Is there not a stark contrast between how small clubs and large companies are treated? Not all large companies, but some, such as Vodafone, are allowed to walk away having not paid tax bills, which in some cases amount to billions of pounds, because they have done a cosy deal with HMRC, while small sports clubs and associations are being hammered by the same organisation.

Christopher Leslie: Indeed. It is a proportionality issue. I am sure that HMRC does not engage in individual negotiation with the sports clubs about how much tax should be paid. The rules will be the rules, and the clubs will have to abide by them, but that does not seem to extend to large organisations for which some people feel there has been too cosy and conversational a set of circumstances to settle a tax bill. Things should be done by the rules, and the rules should be clear and enforced fairly.

Stephen Williams: I thank the hon. Gentleman for giving way, because that intervention may have been something of an own goal. Would the Labour Front-Bench team like to comment on the tax avoidance done today by the Labour party, on Mr John Mills’s £1.65 million donation of shares in his shopping channel company? We understand—it was reported in T he Daily Telegraph—that he was advised by the Labour party to avoid tax. Would the hon. Gentleman like to comment on that?

David Amess: Order. Before the hon. Gentleman responds, I will say that I hope he will not be tempted to go too far down that line. He may make just some general remarks.

Christopher Leslie: I would have loved to respond to the hon. Gentleman. I would dearly like to go into the issue at some length, but I have to abide by your strictures in all such matters, Mr Amess. I feel as though my latitude has been constrained. [ Interruption. ] I would be grateful if my hon. Friend the Member for Gateshead could find some way of working into the clause an ability for me to respond to the hon. Gentleman.

Ian Mearns: I am sad to report that this is my third Finance Bill, but I have only been here three years. [Laughter.] In those three Finance Bills, Government Members seem to have made huge stock of the capacity of business to avoid tax. They seem to make it a virtuous matter: avoidance of tax is good for business. I have heard that time and again. I think that the right hon. Member for North Somerset (Dr Fox) made a particular virtue of avoiding tax. I am surprised at the attitude being shown now by Government Members.

Christopher Leslie: This is a very important set of issues and in general I agree with the thrust of my hon. Friend’s comments. I know that in many subsequent Finance Bill Committees on which he will serve he will look to introduce new clauses and amendments on some of these issues. However, I think that it would be stretching your tolerance, Mr Amess, if we went too far beyond the issue of community amateur sports clubs.

Paul Uppal: May I help and bring some sunlight to the issue? If you will forgive me, Mr Amess, I would like briefly to indulge the Committee on this issue. I could not help but google the subject, and I just thought I could bring in what Mr Mills said, which may help to progress the argument. He said that the Labour party was very professional and incredibly understanding on this matter, and actually provided good guidance. Because I am intervening and so supposed to ask a question, do you think that this is an issue for the hon. Member for Nottingham East of falling off an incredibly high horse, or is this people in glass houses throwing boulders?

Christopher Leslie: The hon. Gentleman asked you a question, Mr Amess—I do not know whether you wish to answer his inquiry of you. I would be delighted to get into some of these issues, were you able to allow me to do so. However, I suspect—
 James Duddridge (Rochford and Southend East) (Con) rose—

Christopher Leslie: I am answering the intervention of the hon. Member for Wolverhampton South West. I notice that he was quoting from an electronic device that he had in his hand—I wonder whether it was the web of the Whips’ notices.

Paul Uppal: No, it was The Telegraph website.

Christopher Leslie: If the hon. Gentleman were able to send me the link to that particular article, I would find it incredibly useful.

David Amess: Order. Before we continue with these exchanges, I remind the Committee to address remarks very carefully to the clause and the schedule that we are debating.

James Duddridge: I hope that I can navigate an orderly way to discuss both the amendment and the donation from John Mills. Setting aside the issue of whether giving to the Labour party is a charitable or worthy cause—let us just assume that some people think that it might be—what would be the comparative tax advantages of giving directly to a charity or political party? Perhaps the hon. Gentleman can compare and contrast the two for someone wanting to donate to a worthy cause.

Christopher Leslie: I suspect that it would be stretching things a little, Mr Amess, to jimmy issues to do with political parties into our discussion of clause 45. However, I will try to find a way of doing so.
I have a second point to raise with the Minister about community amateur sports clubs—jesting aside, Mr Amess, I know that you will want me to focus on some of the issues. The provisions in schedule 20 make changes to the definition of what is known as the “open to the whole community” rule in respect of the tax treatment of some companies. The Minister is making changes to the definitions and descriptions of persons who may be affected. The Corporation Tax Act 2010 set out a definition of the “open to the whole community” rule, and there were a number of quite reasonable suggestions within that. A club is deemed open to the whole community for the purposes of this particular tax arrangement if
“its membership is open to all without discrimination…its facilities are available to members without discrimination, and…its fees…do not represent a significant obstacle to membership or use of its facilities.”
There are some ways in which the clause and schedule are seeking to finesse that arrangement, but the Minister’s substantial change is to delete a whole section on the meaning of the “open to the whole community” provision. Currently, the statute states that
“A club is not prevented from being ‘open to the whole community’ for the purposes”
of the Act merely because it has different classes of memberships, depending on age, whether a member is a student, whether they are waged, or whether they live far from the club and so forth. In a sense, the legislation at present sets out how it is acceptable to delineate fees, for example, for different types of participants within a particular club. It essentially specifies where it is okay and not okay to distinguish between membership fees.
The new schedule—on page 116 of volume II, if hon. Members are interested in finding it—makes membership an open-ended question and leaves it entirely to the discretion of the club. It would now be able to discriminate in a wider array of areas. I am not sure of the genesis of that provision, because there must have been some complaint from sports clubs or others that the existing list of exemptions in legislation was not sufficient.
I am scratching my head and wondering why on earth the Government are making such a change. The only thing I can think of is that a club might want to charge different fees to different types of profession—perhaps a Member of Parliament. Perhaps they would get a discount or, more likely, be charged more for joining a community sports club. Other than things such as freemasonry membership, I cannot understand the rationale for the provision. I do not think the Government intend to allow sports clubs to give discounts just because someone went to Eton or Oxbridge. It is odd that the Minister has decided to sweep away the prescribed areas in legislation and allow greater latitude. That is my second point. Will the Minister explain exactly what is going on with that provision?
My third point is to do with the Treasury giving itself the power to alter the figure that allows clubs to remain exempt from UK trading income corporation tax. It is currently set at £30,000, and clubs need to be reassured that that threshold will not decrease. The property income corporation tax threshold is £20,000, and clubs need to feel safe and reassured that that threshold will not change either. I mention that because the Sport and Recreation Alliance has recommended that the trading income corporation tax and property corporation tax thresholds for which clubs can claim exemption should reflect the cost of living and should be increased by the retail prices index. I do not know whether that would be a good or a bad thing. Obviously there would be an impact on the Exchequer, so I could not commit to doing that, but it would help if the Minister could shed some light on that. Would there be a significant cost, and can he reassure organisations such as the Sport and Recreation Alliance, which are concerned about such points? Those are the issues that I have with the clause and the schedule, and I would be grateful if the Minister helped us with them.

Stephen Doughty: I wish to make some brief remarks. I am particularly interested in community and amateur sports clubs, particularly in my own constituency. I had the pleasure of visiting the Llanrumney Phoenix boxing club in my constituency some months ago. I was pleased to go there to join in a bout of boxing and take part in the training session. It was a fantastic experience, apart from getting punched in the face by one of the young champions who was told, “No holds barred. Go for him.” However, it was a great experience.
I learned about the fantastic work that the volunteers were doing and the amount of work that goes into a small club. It relies heavily on voluntary support and has done for many years. It supports many hundreds of children across the constituency. One of the young members told me that he had lost two stone by taking part. He had stopped eating junk food and had done an amazing amount of work. I should follow his example.
More seriously, when I read the schedule brought about by clause 45 I was struck by the complexity of the detail, including provisions about what constitutes full participation in a club’s activities and provisions for different costs. There is incredible complexity that will increase the additional burdens on many voluntary organisations. I am not suggesting that anybody should not be paying the taxes that they ought to.

Steven Baker: May I draw the hon. Gentleman’s attention to the potential complexity in the statutory instruments that the schedule will require?

Stephen Doughty: Indeed, there is incredible complexity there. What support do Ministers propose to give to small voluntary organisations, such as the Llanrumney Phoenix boxing club, to help them comply, particularly in the context of the Government cutting HMRC advice centres and face-to-face advice? That will cause enough problems for individuals filing their tax returns. What support is being given, particularly given that such organisations rely so much on that voluntary support? Will Ministers provide some help and reassurance to clubs such as Llanrumney Phoenix boxing club and the many other amateur sports organisations that I am sure are in all Committee members’ constituencies?

Steven Baker: On looking at clause 45, I was lulled into a false sense of security. Committee members might ask, what could be better on a 42nd birthday than to enjoy a clause of such brevity?

Christopher Leslie: Happy birthday!

Steven Baker: Thank you. However, turning to schedule 20, I was astonished to discover that it took a page to describe the meaning of
“open to the whole community”,
a page and a half to describe the meaning of
“organised on an amateur basis”
and so on. I am delighted that the hon. Member for Cardiff South and Penarth and I agree that there is a great deal of complexity here and, no doubt, in statutory instruments in due course. If I am annoying the Whip, perhaps he might ensure that I am on the Committee considering the statutory instruments. I would quite like to see this regulation through from one end to the other.
If the clause and schedule stand for anything, it is for a clarion call for tax simplification. It is clear that, contrary to what the hon. Gentleman said, we cannot afford to set up offices to support sports clubs’ compliance with regulations that are supposed to help them by lowering taxes. The cycle of complexity has gone far enough. The schedule shows that, next time round, the Government might have to consider how to simplify the whole business.

Sajid Javid: Mr Amess, it is a pleasure to welcome you back to the Chair and to serve under your chairmanship. I thank all Members for their comments, including the hon. Member for Nottingham East, speaking for the Opposition. I hope that I can answer some of the good points that have been raised.
Clause 45 introduces schedule 20, which amends the conditions that a sports club must meet to be registered as a community amateur sports club, usually referred to as a CASC. The schedule contains a number of powers to make regulations. The detailed conditions will be specified in regulations, after the public consultation that started on Monday 3 June. The powers in the schedule are fairly wide-ranging, but I shall expand on the good reasons for the schedule’s drafting.
By way of background, the CASC scheme was introduced in 2002 to provide a number of charity-type tax reliefs to support local amateur sports clubs. To access those tax reliefs, clubs must meet certain eligibility requirements. They must also register with HMRC. HMRC recently reviewed the legislation and found it unclear. I announced on 4 March that the Government would introduce legislation in Finance Bill to clarify the intent of the scheme. Schedule 20 amends the eligibility requirements for CASCs and includes powers to make further detailed changes through regulations.
We are not making the changes lightly. If we did nothing, HMRC would be required to apply the law, meaning that in many cases many CASCs would no longer qualify for the scheme. I do not want that to happen and I am sure that Committee members agree.
The hon. Member for Nottingham East mentioned a story that he read in the Daily Mail. I am pleased that he reads the Daily Mail; I read it and I like it, particularly when it highlights the damage done to our country by the previous Labour Government—[Interruption.] It is in there every day.
The hon. Gentleman referred to a recent story on an HMRC project investigating amateur cricket clubs. I should make it clear that I have talked to HMRC about that, and that investigation is unconnected to CASCs; it is on risk-based compliance activity, to ensure that employers are correctly operating a payroll system so that everyone pays the right amount of tax. Therefore, if he was referring to the same story that I read, I reassure him that that is not to do with the CASC regulations.
Schedule 20 contains new powers to make regulations. Although the draft regulations are not yet available, there are very good reasons for that. We needed to bring in detailed rules as quickly as possible to give certainty to clubs, but the sports sector is diverse and a set of rules for one sport may not work for another. HMRC is working closely with the Sport and Recreation Alliance to understand the implications of the CASC rules. I am grateful to the SRA for all the work it has done, and continues to do, with HMRC.
The SRA agrees that a proper consultation for the whole sector is essential before detailed rules are brought in. Normally, HMRC would consult before draft legislation is published, and that legislation would be brought forward in next year’s Finance Bill, but clubs cannot wait that long for certainty. The schedule therefore brings in powers to amend and clarify the eligibility conditions through regulations.
HMRC published a consultation document on Monday, which contains detailed proposals for the new conditions. The consultation will end on 12 August and the draft regulations will be published in the autumn. The new rules, therefore, should be in force by early next year. The draft regulations will be subject to the usual parliamentary process under the draft affirmative procedure; that is the most effective way to bring in the rules as quickly as possible.
The schedule makes changes to the eligibility conditions and provides for more detailed rules to be made through regulations. The hon. Gentleman rightly raised the issue that, to benefit from the CASC rules, clubs must be open to the whole community. We are looking at that carefully in the consultation. To join the CASC scheme, a club must be open to the whole community and the cost to an individual to join that club must not represent a significant obstacle either to membership or to participation in the relevant sport.
The schedule allows a limit to be set on the total amount that a club can charge a member to participate in a sport, but clubs with high costs will still be able to qualify for the CASC scheme. In such cases, all that those clubs need to do is to make suitable arrangements for everyone in the community to participate to the maximum amount if they cannot afford the club’s high costs; for example, a sliding scale of costs could be introduced based on an individual’s ability to pay.
The schedule introduces powers to make regulations specifying in more detail when a club is organised on an amateur basis. It also allows clubs to make limited payments to people to play for them. That is to recognise that, while it is important to maintain the amateur nature of the scheme, having a famous player can inspire others within a club. The consultation sets out proposals that explore that issue further. The schedule also allows clubs to pay subsistence payments to members as well as their travelling expenses, which is currently not allowed.
I now turn to the main purpose of the provisions on sporting facilities and encouraging participation in sport. The generous tax reliefs available to CASCs are to support sports clubs. They are not there to support social clubs with some kind of sporting activity as an annexe. Schedule 20 introduces powers to define what is sporting and non-sporting income. It also introduces powers to limit certain types of non-sporting income, for example, significant income from social events not involving sporting activity.
The Government accept that CASCs should be able to generate income from members. We want to encourage clubs to raise more funds so that they can reduce their membership costs. Some CASCs raise income from offering services to members of the public, for example through bars and restaurants. It would not be fair to support CASCs at the expense of other local businesses that do not get favourable tax treatment. The consultation is seeking views on how to achieve a balance, enabling CASCs to raise funds without affecting the local business community.
Schedule 20 also introduces powers to set limits on the proportion of non-sporting members a CASC may have. CASCs are generally exempt from corporation tax, but there are limits on the amount of trading income and property income that they can receive. Schedule 20 contains powers to change those limits. The consultation puts forward proposals to increase those amounts.
HMRC is consulting on the details of the powers that I have mentioned. I hope that as many people as possible contribute to the consultation, which has a closing date of 12 August. As I said, I expect the draft regulations to be laid in the autumn under the draft affirmative procedure. That will give the House an opportunity to scrutinise the detailed rules that emerge from the consultation.
It is possible that, as a result of the detailed procedural rule changes, a small number of existing CASCs may need to make changes to the way they currently operate if they want to stay as a CASC and benefit from the reliefs that they get. CASCs would not need to make any changes until the regulations are made, but affected clubs might want to start putting changes in place when the draft regulations are laid in the autumn.
HMRC stockpiled some applications for registration while it was carrying out its review of the CASC rules. Those applications were from clubs that would not meet the strict interpretation of the current law. I know that several hon. Members have been contacted by local clubs in their constituencies whose applications are currently stockpiled. I am sorry for the delay that the clubs have experienced but I hope that hon. Members will agree with me that it is important to get the rules right first. HMRC is contacting clubs whose applications have been put on hold to explain how the new rules will affect each one. HMRC aims to register as many CASCs as possible during the consultation period. Some clubs with high levels of non-sporting income may need to reorganise their affairs in order to remain a CASC.
One way to do that might be to set up a separate trading subsidiary, as many charities currently do. The subsidiary then donates its profits to the charity under company gift aid but, unlike company gifts to charities, there is no tax relief on company gifts to CASCs. We are therefore consulting on whether subsidiary companies that are wholly owned by the CASC should be able to donate their profits to a CASC under company gift aid. If that measure is taken forward it will be legislated for in next year’s Finance Bill.
Before I conclude, Mr Amess, I would like to turn a similar point that was raised by the hon. Member for Cardiff South and Penarth and by my hon. Friend the Member for Wycombe—I wish him happy birthday, by the way. [Hon. Members: “Hear, hear!”] They both rightly and understandably raised the issue of potential complexity.
I would point out what I think is key. The reason we are in this position in the first place is that the exiting rules were well intended but not clear. That caused confusion that led to the current situation. The Government have decided to amend the rules, which unfortunately requires legislation, though in a way that will hopefully be supported by the sporting community. The co-operation we have received so far has certainly been very welcome. Since my ministerial statement on 4 March, the feedback from the sporting community and local sporting associations in particular has been very positive and supportive of the Government’s approach, which in many cases should lead to a more flexible outcome for local sporting charities.
The Government are committed to delivering and maintaining a real sporting legacy after the London 2012 Olympic and Paralympic success. An important part of securing that legacy is encouraging greater participation in sport at amateur level. The Government recognise the importance and value of CASCs. I hope that, as well as providing certainty for existing CASCs, the changes will encourage more clubs to apply and qualify for CASC status. I therefore recommend that the clause and schedule stand part of the Bill.

David Amess: I join everyone else in wishing Mr Baker a happy birthday, but we must refrain from singing “Happy Birthday”.

Question put and agreed to.

Clause 45 accordingly ordered to stand part of the Bill.

Schedule 20 agreed to.

Clause 46  - Lifetime allowance charge: power to amend the transitional provision in Part 2 of Schedule 18 to FA 2011 etc

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: As if we could not get any more excitement in this Committee, we now turn to pensions, in which I know many hon. Members are very interested. Clause 46, which deals with the question of the lifetime allowance charge and the power to amend the transitional provision in part 2 of schedule 18 to the Finance Act 2011, is now with us. The clause relates to the lifetime allowance and the changes that have been made. This provision is only one facet of that.
As all hon. Members will know, the lifetime allowance is the amount that a person can claim for their pension throughout their lifetime without incurring a tax charge. It was introduced in April 2006, at the level of £1.5 million. Those with pension pots exceeding that amount before 2006 could apply for primary protection or enhanced protection. The aim behind protection was to ensure that those whose pots already exceeded the lifetime allowance, otherwise known as the LTA—not the Lawn Tennis Association, but something quite different—before its introduction would not incur unnecessary charges.
The LTA gradually increased in subsequent years and then it was decreased in 2012 from £1.8 million to £1.5 million. To protect those with an LTA worth £1.8 million and over, Her Majesty’s Revenue and Customs allowed a limited period for them to apply for protection for their pension pots to avoid a tax charge on the excess amount.
Clause 46 allows HMRC to alter provisions that were intended for the transitional period for when the lifetime allowance was last decreased. Fixed protection was introduced as a result of that decrease in the LTA. That fixed protection had to be applied for before April 2012 and it allowed a fixed LTA of £1.8 million. There are tighter restrictions on having fixed protection. The main points are that it cannot be dropped and it cannot be replaced with the previous protection on a pension pot.
This clause gives HMRC additional powers to make specific regulations in relation to transitional protection notices. However, expanding HMRC’s power will also expand the need for accountability of the regulations that it is implementing. Obviously, there will be, at first glance, very little sympathy from many of our constituents for those fortunate enough to have what appears to be a large pension pot—£1.5 million or above—but there are legitimate questions that need to be asked for those affected and how they will make choices about whether they would like to apply for the fixed protection 2014 if the alternative option is going to continue through the consultation period.
I therefore have a number of specific questions to ask the Minister. How will the fixed protection arrangement be assessed, and how will an individual know whether they have the right to that higher lifetime allowance? When will the final provisions of the individual protection 2014 be announced? In other words, what are the consultation arrangements around that? I would be grateful if the Minister set those out.
How many people will be allowed the higher lifetime allowance arrangement under individual protection? If everyone is in with a good chance of increasing their lifetime allowance, what is the point of reducing the standard of lifetime allowance? What is the deadline for applying for fixed protection 2014? Should not the deadline be introduced once provisions for individual protection have been decided?
As a result of the new powers to make regulations, if any future regulation does not go according to plan, will the Government take responsibility? Is the Treasury opening up a liability in some respects on this issue? Finally, will the new provisions be subject to the negative or affirmative procedure for statutory instruments? It seems to be the negative procedure, but could he explain why?

Sajid Javid: Clause 46 is intended to ensure that the fixed protection regime introduced in 2012 works as intended.
I welcome the comments of the Opposition spokesman, although I note that some of his questions, in particular to do with individual protection and how that regime will work, are more connected with the next clause, which I will be discussing. Perhaps he will bear with me if I do not answer certain points directly. I will, however, ensure that they get answered when we discuss clause 47, which is more directly linked to that line of questioning.
In the Finance Act 2012, we reduced the lifetime allowance for pension savers from £1.8 million to £1.5 million from April 2012. At the same time, we introduced the fixed protection regime to protect those individuals who had already built up pension savings in the expectation that the lifetime allowance would remain at its 2011-12 level of £1.8 million. Following the introduction of those changes, in discussions with the pensions industry we were made aware of a number of areas where improvements could be made to the fixed protection rules. We therefore announced in the 2012 Budget that a regulation-making power would be introduced in the 2013 Finance Bill to allow the changes to be made.
The clause allows a new power to make regulations that can amend the tax rules for the existing fixed protection regime. Draft regulations were published for consultation alongside the draft clause in December 2012. The regulations are intended to help ensure that fixed protection is not lost through circumstances outside the control of the member.
For example, the regulations will ensure that where the member opts for an active membership of their pension scheme, any statutory increases applied to deferred pension benefits will not lead to the loss of fixed protection. The regulations also apply where someone has UK tax relief pension savings in a non-UK pension scheme that are tested against the lifetime allowance. The regulations ensure that, for the purposes of fixed protection, those savings are subject to the same conditions as if savings had been in a UK-registered pension scheme.
The changes in the draft regulations are reflected in a new fixed protection regime under clause 47, which I will come on to shortly. That will ensure that both fixed protection regimes—the one with the changes to lifetime and output made previously, and the one with the changes we announced in the Budget, which I will come to under clause 47—match each other as closely as possible.
In conclusion, the changes to the fixed protection regime will ensure that the rules work as intended and are applied fairly across everyone with UK tax relief pension savings.

Christopher Leslie: Might some inspiration be about to strike the Minister on some of the specific issues? Some questions bleed across from this clause to the next one, but it might be useful for him to dispatch some now. I can see on his face, however, that information is flowing through his veins and is about to be uttered to the Committee and placed on the record—perhaps.

Sajid Javid: Some inspiration has just come my way, which I am happy to share with the hon. Gentleman. He asked whether the regulations are made under the negative or the positive procedure. They are to be made under the negative procedure, which I understand to be usual for changes of this type. He asked when the changes will be consulted on. That will be in the next couple of weeks—shortly.
The hon. Gentleman also asked when the changes would apply. They will apply from 17 April. The set of changes we have discussed here will apply from 5 April 2014. The changes that we announced in the Budget to the lifetime allowance will apply from April 2017.

Christopher Leslie: I apologise to the Minister. I just wanted to double check the date. I thought he said 17 April at one point, but he meant April 2017.

Sajid Javid: I meant 17 April.

Christopher Leslie: Oh. What is the rationale for that date? It does not align with a tax year. It is a strange midway point through the month.

Sajid Javid: If the hon. Gentleman would allow me, when I come to the next clause I will clarify that point for him.

Christopher Leslie: Of course I am happy to allow the Minister that latitude.

Question put and agreed to.

Clause 46 accordingly ordered to stand part of the Bill.

Clause 47  - Lifetime allowance charge: new standard lifetime allowance for the tax year 2014-15 and subsequent tax years

Question proposed, That the clause stand part of the Bill.

David Amess: With this we will discuss the following:
That schedule 21 be the Twenty-first schedule to the Bill.

Christopher Leslie: We are continuing our conversation about lifetime allowance charges. In the autumn statement, the Chancellor announced that by 2016-17—perhaps that is where the number comes from—the Treasury would accrue a number of savings because of the reduction in the standard lifetime allowance from £1.5 million to £1.25 million.
The tax charge on the lifetime allowance over the standard amount only occurs on the excess and, if the excess is paid as a lump sum, the charge is 55%. If it is paid as a pension payment the charge is 25%. Pensioners who already have savings with more than the new lifetime allowance can apply for the protections that we debated on the previous clause.
As the measure is being implemented from the tax year beginning 2014, it would be useful to get some clarity from the Minister about how much the Treasury will save in financial years 2014-15 and 2015-16. I will double check in the Red Book in a moment, but I wonder whether he could share with the Committee the revenue implications of that. While he is at it, could he explain why a lifetime allowance reduction was not taken from April 2013?
Obviously, there is a delay in this provision; I wonder what the rationale is for that delay. If there were revenue issues and a particular sum of money involved then there could have been potential revenue for the Exchequer if the change had been made in 2013 as opposed to 2014. Could the Minister set out what the sum of money would have been in terms of yield to the Exchequer had that lifetime allowance decreased to £1.25 million from April 2013?
It is important that the Government should have a clear strategy that avoids confusion, unintended consequences and unexpected arrangements for people to make. I should be grateful if the Minister set out the Government’s strategy on this issue so that everyone is confident that they can plan effectively over the long term. Obviously, the Government have not budged much of the deficit, which has stuck pretty much at the same level over a three-year period. Deficit reduction is a thing of the past. They will be looking at revenue generation in a number of different ways and tweaking a number of pension arrangements.
It would be helpful for all concerned to get a sense of whether the Treasury is just making judgments on a month-by-month, year-by-year basis or whether it has an overall settled view about what the lifetime and annual allowance arrangements ought to be. One of the facets of pensions policy is the need for some level of permanence, stability and predictability, so that everyone is clear about the rules. There is a sense that some of them are changing.
I am not against settling at a level that is fairer for the taxpayer, and we would not necessarily object to some of the arrangements. A tighter lifetime allowance is perfectly reasonable. In fact, under clause 48, we will discuss the annual amounts involved. Again, however, it is strange that the Government decided to end the 20% limit on tax relief on pension contributions for people earning over £150,000 and put it back up to 45%, in particular when some of that revenue could have been used for more beneficial purposes.
Will the Minister set out how much the Treasury will save over those tax years and how much would have been saved in 2013-14? Will he give us an insight into the strategy and whether there is any prospect of stability in this field or are further reviews likely in future Budgets?

Sajid Javid: Clause 47 and schedule 21, together with clause 48, make changes to ensure that the cost of pensions tax relief is fair, affordable and sustainable. The reduction in the lifetime and annual allowances is an integral part of the Government’s deficit reduction plan and protects the public finances from the growing cost of relief by limiting the amount of pension relief going to the highest earners.
I will clarify the dates that the hon. Gentleman asked me about earlier. As he correctly mentioned, the change in lifetime allowance announced in the Budget takes effect from April 2014 onwards. If I understood him correctly, he also asked, “Why not April 2013?” The delay is deliberate to allow the protection regime to be clarified and also to give individuals affected some time to reorganise their tax affairs.
The hon. Gentleman also asked about the two protection regimes—the fixed and individual protection regimes—about which I will talk further, and about how much time the individuals have to apply for such protection. For fixed protection, they must apply by April 2014. For individual protection, the deadline is April 2017.
In 2011-12, tax relief for pension savings cost the Government some £35 billion in total, with two thirds of the relief going to higher-rate taxpayers. At the 2012 autumn statement, the Government announced that we would therefore reduce the lifetime allowance from £1.5 million to £1.25 million from the 2014-15 tax year. That reduction in the lifetime allowance, together with the annual allowance reduction, is expected to raise over £1 billion per annum in a steady state. The hon. Gentleman asked whether I had some numbers to provide more granular detail on the expected savings in the early years. I do not have those figures to hand, but I am happy to see what I can provide later in writing.
The Government also announced in the autumn statement that a fixed protection regime will be offered to individuals who think they may be affected by the change. The new fixed protection regime allows individuals to retain a lifetime allowance of £1.5 million when the allowance is reduced to £1.25 million. To keep fixed protection, however, individuals cannot actively accrue new pension benefits after 5 April 2014. The protection will prevent individuals from being subject to retrospective tax changes because of the reduction in lifetime allowance.
Following discussions with the pensions industry and other interested parties at Budget 2013, we announced that, in addition to fixed protection, an individual protection regime will also be offered. Individual protection will give people a lifetime allowance based on the value of their pension savings on 5 April 2014, up to an overall maximum of £1.5 million. Individual protection will allow individuals to continue to make pension savings after 5 April 2014. A consultation on the detail of the individual protection regime will be undertaken shortly.
The changes made by clause 47 will reduce the standard lifetime allowance for tax-privileged pension saving from £1.5 million to £1.25 million from 2014-15 onwards. The reduction in the lifetime allowance will affect only individuals with the largest pension pots. Currently, 98% of individuals approaching retirement have a pension pot worth less than £1.25 million. We estimate that about 30,000 individuals will have pension pots of between £1.25 million and £1.5 million in 2014-15, when the lifetime allowance is reduced.
As I mentioned, two types of transitional protection will be available: fixed protection and individual protection. The detail of the fixed protection regime is in schedule 21 to the Bill, which also includes a number of consequential amendments to the current pensions tax rules. They are intended to ensure that the reduction to the lifetime allowance does not inadvertently disadvantage or provide an unintended advantage to certain individuals.
When the lifetime allowance was reduced to £1.5 million from April 2012, we offered a fixed protection regime. About 28,000 individuals applied for that, so fixed protection is familiar to the pensions industry and pensions advisers. The new fixed protection regime will therefore follow as closely as possible the existing fixed protection regime, minimising the burdens on industry.
Individuals with fixed protection will continue to benefit from a personalised lifetime allowance of £1.5 million, but there are restrictions on future savings. All estimated 30,000 individuals who have pension pots of between £1.25 million and £1.5 million will be able to benefit from fixed protection. Fixed protection will also be available for individuals who currently have pension savings of less than £1.25 million, but who think that their pension pot will grow to more than £1.25 million if they do not make any further savings to their pension scheme.

Christopher Leslie: Will the Minister set out how many individuals will be affected by the change? He talked earlier about percentages of those who have pensions above a certain amount, but I want a specific idea of the number of people who will be affected by the change in the lifetime allowance.

Sajid Javid: The best estimate that we have at this point is that about 30,000 individuals will have pension pots of between £1.25 million and £1.5 million in 2014-15 and will therefore see their lifetime allowance reduced. I do not believe that we have any more information. It is an estimate at this point, but I believe it to be the best estimate we can make, given the circumstances.
The detail of how to apply for fixed protection will be set out in regulations, which were published in draft for comment in December 2012. The regulations will give individuals until 5 April 2014 to apply to HMRC for fixed protection. We will shortly be consulting on the detail of the individual protection regime. The consultation will include draft legislation to give a clear indication of how we plan the protection to work.
In conclusion, restricting the level of lifetime allowance to £1.25 million will ensure that pensions tax relief is more affordable and sustainable. The new protection regimes offered will ensure that existing savers are protected from retrospective tax charges, in a way that is fair and that is understood by the pensions industry.

Question put and agreed to.

Clause 47accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Brooks Newmark.)

Adjourned till this day at Two o’clock.